About Rs 3 Lakh Crore Loans Of Banks 'Irreversible', Says PM's Advisor Bibek Debroy

The Punjab National Bank (PNB) announced on February 26 that fraudulent transactions involving the bank could go up to $204 million. This is in addition to the $1.77 billion it had earlier reported in the Nirav Modi case, sending down its shares to a 20-month low of 8.9%. Now, in an interview to Quartz India, chief of PM Modi’s economic advisory council, Bibek Debroy, said about 30% of bad loans in Indian banks may be irretrievably lost.

Possibility of 30% bad loans never getting recovered

With Indian banks being under more than Rs 6 lakh crore ($93 billion) debt in bad loans in the last three years and the revelation of fraud worth over $1.8 billion in the past three weeks, the situation has only. Adding to the woes, it is now speculated that nearly 30% of all bad loans will never be recovered.

Speaking to Quartz India, Bibek Debroy, chief of PM Modi’s economic advisory council, said, “By my reckoning, the amount that will be irretrievably lost, will be probably around Rs 3 lakh crore and not more than that. The remaining may be retrievable, which means banks, and promoters have to take haircuts.”

The Rs 3 lakh crore in write-offs in addition to the massive write-offs of the last three years could cause damage to the already fragile banking system of India.

The Modi government had announced a Rs 2.11 lakh crore recapitalisation plan for state-owned banks.

Commenting on the question of privatisation of government banks, Debroy told Quartz India that, “Will you buy ‘x’ bank with the current assets and liabilities? The answer is probably ‘no.’ It will be cheaper for you set up a new bank. I don’t think there will be any takers. Not until there has been some cleaning up.”

With the recent unearthing of massive scams and frauds, the uproar by investors and taxpayers for increased accountability has only grown.

Nirav Modi and Mehul Choksi scam biggest ever to hit an Indian lender

It was reported on Tuesday that the Central Bureau of Investigation (CBI) has raided the offices of law firm Cyril Amarchand Mangaldas, which represented Nirav Modi for a while.

When Reuters tried to contact Cyril Amarchand, he did not respond to a request for comment on this matter.

The PNB scam involving swindling of more than Rs 114 million by billionaire Nirav and Modi and his uncle Mehul Choksi is said to be the biggest scam to hit an Indian lender. The sheer magnanimity of the scam has raised some serious questions in the minds of people regarding the supervision exercised by the central bank and the auditors.

Till now six arrests from the bank and six more from Modi’s and Choksi companies have been made. Apart from the arrests, a number of properties including jewellery and luxury vehicles have been seized. Noth Modi and Choksi are absconding from the country.

PNB shares were trading down 8.2% at 0500 GMT. This has been the lowest since June 2016. A sub-index of state-run lenders, the PSU Bank index, was down 2.5%, while top-ranked State Bank of India was down 2%.